cases on INTERNATIONAL LAW

1. 1. Prudential Bank vs IAC (GR 74886; December 8, 1992)
Facts:
Defendant Philippine Rayon Mills, Inc. entered into a contract with Nissho
Co., Ltd. of Japan for the importation of textile machineries To effect...
payment for said machineries, the defendant... applied for a commercial
letterof creditwiththe Prudential Bank...infavorof Nissho Againstthisletter
of credit,draftswere drawnandissuedbyNissho...whichwere all paidbythe
Prudential Bank As indicated on their... faces, two of these drafts... were
accepted by the defendant... through its president,... Anacleto R. Chi, while
the otherswere notUpon the arrival of the machineries, the Prudential Bank
indorsedthe shippingdocumentstothe defendant...whichaccepteddelivery
of the same.To enable the defendant...totake deliveryof the machineries, it
executed, by prior arrangement with the Prudential Bank, a trust receipt
whichwassignedbyAnacletoR.Chi in hiscapacity as Prisident At the back of
the trust receiptisa printedformtobe accomplishedbytwosuretieswho,by
the verytermsand conditionsthereof,were tobe jointly and severally liable
to the Prudential Bankshouldthe defendant-appellant fail to pay the total...
amount or any portion of the drafts issued by Nissho and paid for by
Prudential Bank. The defendant-appellant was able to take delivery of the
textile machineries and installed the same at its factory site... in 1967, the
defendant-appellant ceased business operation 's factory was leased by
Yupangco Cotton Mills... all the textile machineries in the defendant-
appellant'sfactorywere soldtoAICDevelopmentCorporation The obligation
of the defendant... arising from the letter of credit and the trust receipt
remained unpaid and unliquidated. Hence, the present action for the
collection of the principal amount of P956,384.95 was filed... against the
defendant... trial court rendered its decision... sentencing the defendant
Philippine Rayon Mills, Inc. to pay plaintiff the sum of P153,645.22
Issues:
WHETHER OR NOT SIGHT DRAFTS REQUIRE PRIOR ACCEPTANCE FROM
RESPONDENT PHIL. RAYON BEFORE THE LATTER BECOMES LIABLE TO
PETITIONER."
Ruling:
there was no need for... acceptance as the issued drafts are sight drafts.
Presentmentforacceptance isnecessaryonlyinthe casesexpressly provided
for in Section 143 of the Negotiable Instruments Law (NIL).
The said section reads:
"SEC. 143. Whenpresentmentforacceptance must be made. -- Presentment
for acceptance must be made:
(a) Where the bill is payable after sight, or in any other case, where
presentment for acceptance is necessary in order to fix the maturity of the
instrument; or
(b) Where the bill expressly stipulates that it shall be presented for
acceptance; or
(c) Where the bill is drawn payable elsewhere than at the residence or
place of business of the drawee.
In no other case is presentment for acceptance necessary in order to render
any party to the bill liable."
Obviously then, sight drafts do not require presentment for acceptance
The acceptance of a bill isthe signification by the drawee of his assent to the
orderof the drawer;...thismaybe done inwriting by the... drawee in the bill
itself, or in a separate instrument.
In the instantcase the drafts being at sight, they are supposed to be payable
upon acceptance unless plaintiff bank has given the Philippine Rayon Mills
Inc. time within which to pay the same. The first two drafts... were duly
accepted as indicated on their face
, and upon such acceptance should, have been paid forthwith. These two
draftswere not paid and although Philippine Rayon Mills ought to have paid
the same, the fact remains that until now they are still... unpaid.
2. Wong vs Court of Appeals (GR No. 117857; February 2, 2001)
Facts:
Petitioner Wong was an agent of Limtong Press Inc. (LPI), a manufacturer of
calendars. LPI would print sample calendars, then give them to agents to
present to customers. The agents would get the purchase orders of
customersandforwardthemto LPI. Afterprinting the calendars,... LPI would
ship the calendars directly to the customers. Thereafter, the agents would

2. come around to collect the payments. Petitioner, however, had a history of
unremitted collections
Hence, petitioner's customers were required to issue postdated checks
before LPI would accept their purchase orders.
Wong issuedsix (6) postdatedcheckstotalingP18,025.00, all datedDecember
30, 1985 and drawn payable to the order of LPI
These checks were initially intended to guarantee the calendar orders of
customers who failed to issue post-dated checks. However, following
companypolicy,LPI refused to accept the checks as guarantees. Instead, the
parties agreed to apply the checks to the payment of... petitioner's
unremitted collections for 1984 amounting to P18,077.07.
LPI waived the P52.07 difference.
Before the maturity of the checks, petitioner prevailed upon LPI not to
deposit the checks and promised to replace them within 30 days
However, petitioner reneged on his promise. Hence,... LPI deposited the
checks with Rizal Commercial Banking Corporation (RCBC).
The checks were returned for the reason "account closed."... complainant...
notified the petitioner of the dishonor. Petitioner failed to make
arrangements for payment within five (5) banking days.
petitioner was charged with three (3) counts of violation of B.P. Blg. 22
Issues:
May the prosecutionapplythe primafacie presumptionof "knowledgeof lack
of funds" against the drawer if the checks were belatedly deposited by the
complainant 157 days after maturity, or will it be then necessary for the
prosecutiontoshowactual...proof of "lackof funds"duringthe 90-day term?
Ruling:
Petitioner avers that since the complainant deposited the checks
157 days after the December 30, 1985 maturity date, the presumption of
knowledge of lackof fundsunderSection2 of B.P. Blg. 22 should not apply to
him. He further claims that he should not be... expected to keep his bank
account active and funded beyond the ninety-day period.
Under Section 186 of the Negotiable Instruments Law, "a check must be
presentedforpaymentwithinareasonable time after its issue or the drawer
will be discharged from liability thereon to the extent of the loss caused by
the delay." By current banking practice, a... check becomes stale after more
than six (6) months,[...or180 days.Private respondent herein deposited the
checks 157 days after the date of the check. Hence said checks cannot be
considered stale.
3. International Corporate Bank vs Gueco (GR No. 141968; February 12,
2001)
FACTS:
The respondent Gueco Spouses obtained a loan from petitioner (now
UnionBank) topurchase a car. Hence,the Spousesexecutedpromissorynotes
which were payable in monthly installments and chattel mortgage over the
car to serve as security for the notes.
The Spousesdefaulted inpayment.The Bank,therefore,filedacivil action for
"Sum of Money with Prayer for a Writ of Replevin" before the MTC. The car
was detained inside the Bank’s compound.
Dr. Gueco delivered a manager's check in amount of P150,000.00 but the car
was notreleasedbecause of hisrefusaltosignthe JointMotionto Dismiss for
theyhad notyet filedtheirAnswer.The Bankinsistedthatthe jointmotion to
dismississtandardoperatingprocedure intheir bank to effect a compromise
and to preclude future filing of claims, counterclaims or suits for damages.
After several demand letters and meetings with bank representatives, the
spouses initiated a civil action for damages. The RTC held that there was a
meetingof the mindsbetweenthe parties as to the reduction of the amount
of indebtednessandthe release of the carbut saidagreementdidnotinclude
the signingof the joint motion to dismiss as a condition sine qua non for the
effectivity of the compromise.
Issue:
Whether or not the spouses should replace the check they paid to the bank
after it became stale
Held:
Yes. It appeared that the checkhas not beenencashed. The delivery of the
manager’s check did not constitute payment. The original obligation to pay
still exists.Indeed,the circumstances that caused the non-presentment of

3. the check should be consideredtodetermine who should bear the loss. In
this case, ICB held on the check and refused to encash the same because of
the controversysurroundingthe signingof the joint motion to dismiss. There
is no bad faith or negligence on the part of ICB.
A stale check is one which has not been presented for payment within
a reasonable time afteritsissue.Itis valueless and, therefore, should not be
paid. A check should be presented for payment within a reasonable
time after its issue. Here, what is involved is a manager’s check, which
is
Essentiallyabank’sowncheckand may be treated as a PN with the bank as a
maker. Even assuming that presentment is needed, failure to present for
payment within a reasonable time will result to the discharge of the
draweronly to the extent of the loss caused by the delay—but here there is
no loss sustained. Still, such failure to present on time does not wipe out
liability.
4. State Investment House, Inc. vs CA and Nora Moulic (GR No. 101163;
January 11, 1993)
Facts:
Nora Moulic issued to Corazon Victoriano, as security for pieces of
jewellery to be sold on commission, two postdated checks in the amount of
fifty thousand each. Thereafter, Victoriano negotiated the checks to State
InvestmentHouse,Inc.WhenMoulicfailedtosell the jewellry,she returnedit
to Victorianobefore the maturity of the checks. However, the checks cannot
be retrievedas they have been negotiated. Before the maturity date Moulic
withdrewherfundsfromthe bankcontestingthat she incurred no obligation
on the checks because the jewellery was never sold and the checks are
negotiated without her knowledge and consent. Upon presentment of for
payment, the checks were dishonoured for insufficiency of funds.
Issues:
Whether or not State Investment House inc. was a holder of the
check in due course
Held:
Yes, Section 52 of the NIL provides what constitutes a holder in due
course.The evidence showsthat:on the faces of the post dated checks were
complete and regular; that State Investment House Inc. bought the checks
fromVictoriano before the due dates; that it was taken in good faith and for
value;and there was no knowledge with regard that the checks were issued
as security and not for value. A prima facie presumption exists that a holder
of a negotiable instrument is a holder in due course. Moulic failed to prove
the contrary.
No,Mouliccan onlyinvoke thisdefense againstthe petitionerif it was a privy
to the purpose for which they were issued and therefore is not a holder in
due course.
5. Bataan Cigar and Cigarette Factory, Inc vs CA (GR No. 93048; March 3,
1994)
Facts:
Bataan Cigar & Cigarette Factory, Inc. engaged one of its suppliers, King Tim
Pua George to deliver 2,000 bales of tobacco leaf starting October 1978.
BCCFI, on July 13, 1978 issued crossed checks post dated sometime in March
1979 in the total amount of P820,000.00. Relying on the supplier's
representation that he would complete delivery within three months from
December 5, 1978, petitioner agreed to purchase additional 2,500 bales of
tobacco leaves, despite the supplier's failure to deliver in accordance with
theirearlieragreement.Againpetitioner issued post dated crossed checks in
the total amount of P1,100,000.00, payable sometime in September 1979.
George King failed to deliver the bales of tobacco leaf as agreed despite
petitioner's demand, BCCFI issued on March 30, 1979, a stop payment order
on all checks payable to George King Efforts of SIHI to collect from BCCFI
failed,the trial courtpronouncedSIHIashavinga validclaimbeingaholder in
due course. Which was affirmed by the CA
Issue:
Whetheror notSIHI, a secondindorser,aholderof crossedchecks,isa holder
in due course, to be able to collect from the drawer, BCCFI?

4. Held:
No. Crossing of a check should have the following effects: (a) the check may
not be encashed but only deposited in the bank; (b) the check may be
negotiated only once — to one who has an account with a bank; (c) and the
act of crossing the check serves as warning to the holder that the check has
beenissuedforadefinite purpose so that he must inquire if he has received
the check pursuant to that purpose, otherwise, he is not a holder in due
course BCCFI's defense in stopping payment is as good to SIHI as it is to
George King.Because,really, the checks were issued with the intention that
George King would supply BCCFI with the bales of tobacco leaf. There being
failure of consideration, SIHI is not a holder in due course.
6. Citytrust Banking Co vs IAC (GR No, 84281; May 27, 1994)
Facts:
Emme Herrero, businesswoman, made regular deposits with Citytrust
Banking Corp. at its Burgoa branch in Calamba, Laguna. She deposited the
amountof P31, 500 inorderto amplycover6 postdatedchecksshe issued.All
checkswere dishonoreddue toinsufficiency of funds upon the presentment
for encashment.CitytrustbankingCorp.asserted that it was due to Herrero’s
faultthat herchecks were dishonored, for he inaccurately wrote his account
numberinthe depositslip.RTCdismissed the complaint for lack of merit. CA
reversed the decision of RTC.
Issue:
Whether or not Citytrust banking Corp. has the duty to honor checks
issuedbyEmme Herrerodespite the failure to accurately stating the account
number resulting to insufficiency of funds for the check.
Held:
Yes, even it is true that there was error on the account number stated
in the deposit slip, its is, however, indicated the name of “Emme Herrero.”
This is controlling in determining in whose account the deposit is made or
shouldbe posted. Thisissobecause itis notlikelytocommitanerror in one’s
name than merely relying on numbers which are difficult to remember.
Numbers are for the convenience of the bank but was never intended to
disregard the real name of its depositors. The bank is engaged in business
impressed with public trust, and it is its duty to protect in return its clients
and depositorswhotransactbusinesswithit.It should not be a matter of the
bankalone receivingdeposits,lendingoutmoneyandcollectinginterests.Itis
also its obligation to see to it that all funds invested with it are properly
accounted for and duly posted in its ledgers.
7. Tan vs CA (GR No. 108555; December 20, 1994)
FACTS:
PetitionerRamonTan,a trader-businessmanandcommunityleaderin Puerto
Princesa, had maintained since 1976 Current Account No. 109058068 with
respondent bank’s Binondo branch. To avoid carrying cash while enroute to
Manila, he secured a Cashier’s Check No. L 406000126 from the PCIB, Puerto
Princesa branch, in the amount of 30,000.00 Pesos, payable to his order. He
deposited the check in his account with RCBC Binondo. On the same day,
RCBC erroneously sent the same cashier’s check for clearing to the Central
Bank whichwasreturnedforhavingbeen“missent”or“misrouted.” The next
day,RCBC debitedthe amountcoveredby the same cashier’s check from the
account of the petitioner.Respondentbankatthistime hadnot informed the
petitioner of its action which the latter claims he learned of only 42 days
after.
Relying on the common knowledge that a cashier’s check was as good as
cash, that the usual banking practice that local checks are cleared within 3
workingdaysand regional checkswithin7workingdays, and the fact that the
cashier’s check was accepted, petitioner issued 2 personal checks. Upon
presentment of the issued checks, both checks were dishonored due to
insufficiency of funds.
ISSUE:
Whether the petitioner’s reliance that a cashier’s check is good as cash is
correct.
RULING:
An ordinary check is not a mere undertaking to pay an amount of money.
There is an element of certainty or assurance that it will be paid upon
presentation that is why it is perceived as a convenient substitute for

5. currencyin commercial andfinancial transactions.The basisof the perception
beingconfidence. Any practice that destroys that confidence will impair the
usefulness of the check as a currency substitute and create havoc in trade
circles and the banking community.
Now, what was presented for deposit in the instant cases was not just an
ordinary check but a cashier’s check payable to the account of the depositor
himself. A cashier’s check is a primary obligation of the issuing bank and
acceptedinadvance by itsmere issuance.Byitsverynature,a cashier’s check
is the bank’s order to pay drawn upon itself, committing in effect its total
resources, integrity and honor behind the check. A cashier’s check by its
peculiar character and general use in the commercial world is regarded
substantially to be as good as the money which it represents. In this case,
therefore,PCIB by issuing the check created an unconditional credit in favor
of any collecting bank.
All these considered,petitioner’s reliance on the layman’s perception that a
cashier’s check is as good as cash is not entirely misplaced, as it is rooted in
practice, tradition, and principle. We see no reason thus why this so-called
discretionwasnotexercised in favor of petitioner, especially since PCIB and
RCBC are membersof the same clearing house group relying on each other’s
solvency. RCBC could surely rely on the solvency of PCIB when the latter
issued its cashier’s check.
8. Papa vs A. V. Valencia and Co., Inc. (GR No, 105188; January 23, 1998)
FACTS:
The respondents, A.U Valencia & Penarroyo, filed a complaint for specific
performance against petitioner Papa to deliver the title and turn over the
accrued rentals.The case arose froma sale of a parcel of land allegedly made
to Penarroyo by petitioner acting as attorney-in-fact of Anne Butte. The
purchaser, through Valencia, made a check payment in the amount of
P40,000 and in cash, P5,000. Both were accepted by petitioner as evidenced
by various receipts. It appeared that the said property has already been
mortgaged to the bank previously together with other properties of Butte.
On appeal,the petitionerarguedthatallegedsale of the subjectpropertyhad
not been consummated because he did not encashed the check (in the
amount of P40,000.00), which did not produce the effect of payment as in
Art. 1249 of the Civil Code.
ISSUE:
Whetherpayments by check shall produce the effect of payment only when
cashed?
RULING:
It is an undisputed fact that respondents Valencia and Peñarroyo had given
petitionerMyron C. Papa the amounts of Five Thousand Pesos (P5,000.00) in
cash on 24 May 1973, and Forty Thousand Pesos (P40,000.00) in check on 15
June 1973, in payment of the purchase price of the subject lot.
Petitioner himself admits having received said amounts, and having issued
receiptstherefor.Petitioner’sassertionthathe neverencashed the aforesaid
checkis not substantiatedandisatoddswithhisstatementinhisanswerthat
“he can nolongerrecall the transactionwhichis supposed to have happened
10 years ago.”
Aftermore than ten (10) years from the payment in party by cash and in part
by check, the presumption is that the check had been encashed. As already
stated, he even waived the presentation of oral evidence.
Grantingthat petitionerhadneverencashedthe check,hisfailuretodo so for
more than ten (10) years undoubtedly resulted in the impairment of the
check through his unreasonable and unexplained delay.
While it is true that the delivery of a check produces the effect of payment
only when it is cashed, pursuant to Art. 1249 of the Civil Code, the rule is
otherwise if the debtorisprejudiced by the creditor’s unreasonable delay in
presentment.
The acceptance of a check implies an undertaking of due diligence in
presentingitforpayment,andif he fromwhom it is received sustains loss by
want of such diligence, it will be held to operate as actual payment of the
debtor obligationforwhichitwasgiven.Ithas,likewise, been held that if no
presentment is made at all, the drawer cannot be held liable irrespective of
loss or injury unless presentment is otherwise excused.
Thisis inharmonywithArticle 1249 of the Civil Code underwhichpaymentby
way of check or other negotiable instrument is conditioned on its being
cashed, except when through the fault of the creditor, the instrument is
impaired.

6. The payee of a check would be a creditor under this provision and if its no-
paymentiscaused by his negligence, payment will be deemed effected and
the obligation for which the check was given as conditional payment will be
discharged. Considering that respondents Valencia and Peñarroyo had
fulfilled their part of the contract of sale by delivering the payment of the
purchase price, said respondents, therefore, had the right to compel
petitioner to deliver to them the owner’s duplicate of TCT No. 28993 of
Angela M. Butte and the peaceful possession and enjoyment of the lot in
question.
9. Allied Banking Co. vs CA (GR No 125851; July 11, 2006)
FACTS:
Allied Banking Corp. purchased an export bill from G.G. Sportswear Mfg.
Corp, which was drawn under a letter of credit. The said bill was issued by
Chekiang First Bank Ltd. Upon purchase, Allied credited GGS the peso
equivalent of the bill.
RespondentsNari GidwaniandAlcronInternational Ltd.thenexecuted letters
of guaranty, holding themselves liable if the export bill is dishonored.
RespondentsSpousesde VillaandGidwani alsoexecutedaContinuingSurety.
Alliednegotiatedthe exportbill toChekiang,butwasdishonoreddue tosome
material discrepanciesinthe documents.Allied demanded payment from all
the respondents pursuant to the guaranties and sureties.
Respondentsrefusedtopaybecause Alliedadmittednothavingprotestedthe
dishonor of the export bill, thereby discharging GGS from liability. The
Regional Trial Court dismissed the case. Upon appeal, the Court of Appeals
modifiedthe rulingofthe RTC.The CA heldGGS liable toreimburse Allied, but
exonerated the guarantors from their liabilities.
ISSUE:
Whetheror notrespondents,asguarantors and sureties, may be held jointly
and severallyliable with GGS in the absence of protest made upon dishonor
of the export bill.
RULING:
Yes.Thiscase is a discountingarrangementonthe export bill between Allied
and GGS. GGS, as beneficiary of the export bill, went to Allied instead of
Chekiang to have the bill discounted.
Allied, thereafter, required respondents to execute letters of guaranty. The
letters of guaranty and surety clearly show that respondents undertook and
bound themselves to pay the full amount of the export bill. Respondent’s
reliance on Section 152 of the Negotiable Instruments Law is misplaced
because it pertains to indorsers, not to guarantors/sureties. Contracts of
indorsement pertain to transfer, while contracts of guaranty/surety are
personal securities.
In the former, unless the bill is promptly presented for payment at maturity
and due notice of dishonorisgiventothe indorser,the indorseris discharged
from liability. In the latter, demand or notice of default is not required.
Therefore, no protest on the export bill is necessary to charge respondent
guarantors as jointly and severally liable with GGS. Moreover, the surety
agreement itself contained a clause whereby sureties waive protest and
notice of dishonor.
10. Villanueva vs Nite (GR No. 148211; July 25, 2006)
FACTS:
Respondentallegedly took out a loan of P409,000 from petitioner. To secure
the loan, respondent issued petitioner an Asian Bank Corporation check
amount of P325,500. The check was, however, dishonored due to a material
alterationwhenpetitionerdepositedthe check on. Respondent, through her
representative, remitted P235,000 to petitioner as partial payment of the
loan. However, petitioner filed an action for a sum of money and damages
against ABC for the full amount of the dishonored check. When respondent
went to ABC Salcedo Village Branch to withdraw money from her account,
she was unable to do so because the trial court had ordered ABC to pay
petitioner the value of respondent’s ABC check.
ISSUE:
Whether ABC Bank can be made liable to the petitioner.

7. RULING:
In any event, the RTC decision may be annulled for lack of jurisdiction over
the person of respondent. The pertinent provisions of the Negotiable
Instruments Law are enlightening:
SEC. 185. Check, defined. – A check is a bill of exchange drawn on a bank
payable on demand. Except as herein otherwise provided, the provisions of
thisAct applicable toabill of exchange payable on demand apply to a check.
SEC. 189. Whencheck operatesasan assignment. –A check of itself does not
operate as an assignmentof anypart of the funds to the credit of the drawer
with the bank, and the bank is not liable to the holder, unless and until it
accepts or certifies the check.
If a bankrefusestopay a check(notwithstandingthe sufficiencyof funds),the
payee-holder cannot, in view of the cited sections, sue the bank. The payee
shouldinsteadsue the drawerwhomight in turn sue the bank. Section 189 is
sound law based on logic and established legal principles: no privity of
contract existsbetweenthe drawee-bankandthe payee.Indeed, in this case,
there was no such privity of contract between ABC and petitioner.
Petitionershouldnothave suedABC.Contractstake effect only between the
parties, their assigns and heirs, except in cases where the rights and
obligationsarisingfromthe contract are not transmissible by their nature, or
by stipulationorbyprovisionof law.None of the foregoing exceptions to the
relativity of contracts applies in this case.
11.Bank of the Philippine Islands vs Commissioner of Internal Revenue
G.R. No. 137002 July 27, 2006
Facts:
From 28 February 1986 to 8 October 1986, petitioner Bank of the Philippine
Islands(BPI) soldto the Central Bank of the Philippines (now Bangko Sentral
ng Pilipinas) U.S. dollars for P 1,608,541,900.00. BPI instructed, by cable, its
correspondent bank in New York to transfer U.S. dollars deposited in BPI’s
account therein to the Federal Reserve Bank in New York for credit to the
Central Bank’saccount therein.Thereafter, the Federal Reserve Bank sent to
the Central Bank confirmation that such funds had been credited to its
account and the Central Bank promptly transferred to the petitioner’s
account inthe Philippines the corresponding amount in Philippine pesos. In
1988, respondent CIR ordered an investigation to be made on BPI’s sale of
foreigncurrency. Asa result thereof, the CIR issued a pre-assessment notice
informing BPI that in accordance with Section 195 (now Section 182) of the
NIRC, BPI was liable for documentary stamp tax at the rate of P 0.30 per P
Total tax liabilitywasassessedatP 200.00 on all foreign exchange sold to the
Central Bank. 3,016,316.06, which consists of a documentary stamp tax
liability of P2,412,812.85, a 25% surcharge of P 603,203.21, and a
compromise penalty of P 300.00.
Issue:
Whether or not the transactions covered is a bill of exchange liable for DST.
Held:
Yes. A definition of a “bill of exchange” is provided by Section 39 of
Regulations No. 26, the rules governing documentary taxes promulgated by
the Bureau of Internal Revenue (BIR) in 1924:
Sec. 39. Definition of “bill of exchange”. The term bill of exchange denotes
checks, drafts, and all other kinds of orders for the payment of money,
payable atsight, or on demand or after a specific period after sight or from a
stated date.
Section126 of The NegotiableInstruments Law (Act No. 2031) reiterates that
it is an “order for the payment of money” and specifies the particular
requisites that make it negotiable.
Sec. 126. Bill of exchange defined. – A bill of exchange is an unconditional
order in writing addressed by one person to another, signed by the person
givingit,requiringthe persontowhomitisaddressedtopayon demand or at
fixed or determinable future time a sum certain in money to order or to
bearer.
Section129 of the same lawclassifiesbillsof exchange as inland and foreign,
the distinction is laid down by where the bills are drawn and paid. Thus, a
“foreign bill of exchange” may be drawn outside the Philippines, payable
outside the Philippines,orbothdrawnand payable outside of the Philippines.

8. Sec.129. Inlandandforeignbillsof exchange. — An inland bill of exchange is
a bill which is, or on its face purports to be, both drawn and payable within
the Philippines. Any other bill is a foreign bill.
A bill of exchange and a letter of credit may differ as to their negotiability,
and as to who owns the funds used for the payment at the time payment is
made. However, in both bills of exchange and letters of credit, a person
orders another to pay money to a third person.
Section 195 (now Section 182) of the NIRC covers foreign bills of exchange,
lettersof credit,andordersof payment for money, drawn in Philippines, but
payable outside the Philippines. From this enumeration, two common
elements need to be present: (1) drawing the instrument or ordering a
drawee,withinthe Philippines; and (2) ordering that drawee to pay another
person a specified amount of money outside the Philippines. What is being
taxedisthe facilitythat allows a party to draw the draft or make the order to
pay within the Philippines and have the payment made in another country.
12.Citibank, N. A. vs Saberiano (GR No 156132; October 16, 2006)
Doctrine:
While there is no express legal requirement that the Declaration of Pledge
had to be notarized to be effective, even so, it could not enjoy the same
prima facie presumption of due execution that is extended to notarized
documents, andpetitionerCitibankmustdischarge the burdenof provingdue
execution and authenticity of the Declaration of Pledge.
Facts:
-Sabeniano is a client of both Citibank and FNCB.
-Sabeniano claims to have substantial deposits and money market
placements with Citibank, as well as moneymarket placements with Ayala
Investment and Development Corporation(AIDC) and FNCB, the proceeds
ofwhich are directly deposited to Sabaniano’s Citibank accounts.
-Sabeniano alleges that Citibank refused to return her deposits and the
proceeds of her money marketplacements despite her repeated demands.
-On August 8, 1985, Sabeniano filed a complaint against Citibank.
-RTC orderedCitibanktorefundthe Sabeniano$149,632.99 withlegal inerest
at 12% per annum compoundedyearly. It also ordered Sabeniano to pay
Citibank P1,069,847.40.
-Both parties appealed. The CA rendered a decision in favor of Sabeniano.
-Citibankdidnotdispute the factthatSabenianohassubstantial deposits and
money market placements.However, Citibank claims that Sabeniano is
indebted to Citibank, evidenced by promissory notes amounting to
P2,123,843.20.
-To secure the multiple loans Sabeniano executed a deed of assignment of
hermoneymarketplacements,andadeclarationof pledge covering all of her
present and future fiduciary placements.
-SabenianofailedtopayherdebtwhichledtoCitibank to apply the proceeds
of the money market placements tosatisfy her outstanding loan balance.
-Respondent disputes the narration of facts concerning her loans and the
alleged authority she gave for the off-set of her money market placements
and deposit accounts with petitioners against her obligation.
Issue/s:
Can Citibank apply the proceeds to satisfy respondent’s outstanding loan
balance?
Held:
With regard to loan and deposit account. Yes.Art. 1278. Compensation shall
take place whentwopersons,intheir own right, are creditors and debtors of
each other.Art. 1279. In order that compensation may be proper, it is
necessary;1.(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor ofthe other;2.(2) That both debts
consistina sum of money,or if the thingsdue are consumable,theybe of the
same kind,andalsoof the same qualityif the latterhas been stated;3.(3) That
the two debtsbe due;4.(4) Thattheybe liquidatedanddemandable;5.(5) That
over neither of them there be any retention orcontroversy, commenced by
thirdpersonsandcommunicatedindue time tothe debtor.- Respondent and
Citibank were creditor and debtor of each other; Citibank was creditor with
respect to respondent’sloan and latter was creditor with respect to her
savingsaccountwith Citibank;- As far as her deposit account was concerned,
since bankdeposits,whetherfixed, savings, or current, should beconsidered
as simple loan or mutuum by the depositor to the banking institution;- Both
debts consist in sum of money

9. 13.Equitable PCI Bank vs Ong (GR No 156207; September 15, 2006)
Facts:
Warliza Sarande deposited in her account at Philippine Commercial
International Bank a check in the amount of P225,000.00. Sarande was then
informed that said check has been cleared. Relying on such assurance, she
issued two (2) checks where one was issued to respondent Rowena Ong
Owing to a business transaction. The latter then requested PCI Bank to
convert the proceeds thereof into a manager's check, which the PCI Bank
obliged. When Ong deposited the manager's check in her account with
Equitable BankingCorporation,she receivedacheckreturn-slipinforming her
that PCI Bank had stopped the payment of the said check on the ground of
irregular issuance. Ong then filed a complaint for sum of money against
herein petitioner. Petitioner countered that the check was returned as the
account against which it was drawn was already closed.
Issue:
Is petitioner Bank liable to pay the questioned check?
Held:
Yes. By admitting it committed an error, clearing the manager's check of
Sarande and issuing in favor of Ong not just any check but a manager's check
for that matter, PCI Bank's liability is fixed. Since the Bank had certified that
check, such certification is equivalent to acceptance and petitioner bank as
drawee bank is bound on the instrument upon certification and it is
immaterial to such liability in favor of the plaintiff who is a holder in due
course whether the drawer had funds or not.
SECTION 52. Whatconstitutesa holderin due course.– A holderin due course
is a holder who has taken the instrument under the following conditions:
(a) That it is complete and regular upon its face;
(b) That he became the holderof it before itwasoverdue,andwithoutnotice
it had been previously dishonored, if such was the fact;
(c) That he took it in good faith and for value;
(d) That at the time itwasnegotiatedtohim,he hadno notice of any infirmity
in the instrument or defect in the title of the person negotiating it.
The same law provides further:
Sec. 24. Presumption of consideration. – Every negotiable instrument is
deemed prima facie to have been issued for a valuable consideration; and
every person whose signature appears thereon to have become a party
thereto for value.
Sec. 26. What constitutes holder for value. – Where value has at any time
been given for the instrument, the holder is deemed a holder for value in
respect to all parties who become such prior to that time.
Sec.28. Effect of wantof consideration.–Absence or failure of consideration
is a matter of defense as against any person not a holder in due course; and
partial failure of consideration is a defense pro tanto, whether the failure is
an ascertained and liquidated amount or otherwise.
 manager's check
 an order of the bank to pay, drawn upon itself, committing in effect its
total resources, integrity and honor behind its issuance
 regarded substantially to be as good as the money it represents
 same footing as a certified check
 The object of certifying a check, as regards both parties, is to enable the
holder to use it as money.
 check operates as an assignment of a part of the funds to the creditors
Sec. 187. Certification of check; effect of. – Where a check is certified by the
bank on which it is drawn, the certification is equivalent to an acceptance
Section63 of the Central Bank Act to the effect "that a check which has been
cleared and credited to the account of the creditor shall be equivalent to a
deliverytothe creditorincashin an amount equal to the amount credited to
his account
Sec. 62. Liability of acceptor. – The acceptor by accepting the instruments
engages that he will pay it according to the tenor of his acceptance; and
admits –
(a) The existence of the drawer, the genuineness of his signature, and his
capacity and authority to draw the instrument; and
(b) The existence of the payee and his then capacity to indorse.

10. 14. International Corporate Bank Inc vs CA (GR No 129910; September 5,
2016)
Facts:
The Ministry of Education and Culture issued 15 checks drawn against
respondentwhichpetitioner accepted for deposit on various dates. After 24
hours from submission of the checks to respondent for clearing, petitioner
paid the value of the checks and allowed the withdrawals of the deposits.
However, on 14 October 1981, respondent returned all the checks to
petitioner without clearing them on the ground that they were materially
altered.Thus,petitionerinstituted an action for collection of sums of money
against respondent to recover the value of the checks.
Issue:
Whether the alterations in the serial numbers of the check is a material
alteration.
Held:
No.Sections124 and 125 of Act No.2031, otherwise knownasthe Negotiable
Instruments Law, provide:
SEC. 124. Alteration of instrument; effect of. ― Where a negotiable
instrument is materially altered without the assent of all parties liable
thereon, it is avoided, except as against a party who has himself made,
authorized,orassentedtothe alterationandsubsequentindorsers.Butwhen
an instrument has been materially altered and is in the hands of a holder in
due course, not a party to the alteration, he may enforce payment thereof
according to its original tenor.
SEC. 125. What constitutes a material alteration. ― Any alteration which
changes:(a) The date;(b) The sum payable,eitherforprincipal orinterest; (c)
The time or place of payment;(d) The number or the relations of the parties;
(e) The mediumorcurrencyin whichpaymentistobe made; or which adds a
place of payment where no place of payment is specified, or any other
change or additionwhichaltersthe effectof the instrument in any respect, is
a material alteration.
An alteration is said to be material if it alters the effect of the instrument. It
means an unauthorized change in an instrument that purports to modify in
any respectthe obligationof a party or an unauthorized addition of words or
numbers or other change to an incomplete instrument relating to the
obligation of a party. In other words, a material alteration is one which
changes the items which are required to be stated under Section 1 of the
Negotiable Instruments Law.
The case at the bench is unique in the sense that what was altered is the
serial number of the check in question, an item which, it can readily be
observed,isnotanessential requisite fornegotiability under Section 1 of the
Negotiable Instruments Law. The aforementioned alteration did not change
the relations between the parties. The name of the drawer and the drawee
were notaltered.The intended payee was the same. The sum of money due
to the payee remained the same.
15. Melva Theresa Gonzales vs. Rizal Commercial Banking Corporation
(GR No 156294; November 29, 2006)
Facts:
Gonzaleswasan employeeof Rizal Commercial Banking Corporation (RCBC).
A foreign check in the amount of $7,500 was drawn by Dr. Don Zapanta and
payable toGonzales’mother,defendantEvaAlviar.Alviar then endorsed this
check.Gonzalespresentedthe foreignchecktoOliviaGomez.Afterexamining
this, Olivia Gomez acquiesced to the early encashment of the check and
signed the check but indicated thereon her authority of ―up to P17,500.00
only. RCBC then tried to collect the check with the drawee bank but was
dishonoredbecause of irregular indorsement. Insisting, RCBC again sent the
check to the drawee bank, but this time the check was returned due to
―account closed.‖ Unable to collect, RCBC demanded from Gonzales the
payment of the peso equivalent of the check that she received.
Issue:
Whether or not Gonzales is liable to the subsequent indorser despite of the
defect introduced by the latter which rendered the instrument dishonored.

11. Held:
The foreign drawee bank, Wilshire Center Bank N.A., refused to pay the
bearer of this dollar-check drawn by Don Zapanta because of the defect
introducedbyRCBCthrough itsemployee,OliviaGomez.There is no doubt in
the mindof the Courtthat a subsequentpartywhichcausedthe defect in the
instrument cannot have any recourse against any of the prior endorsers in
good faith. The holder or subsequent endorser who tries to claim under the
instrument which had been dishonored for ―irregular endorsement‖ must
not be the irregularendorserhimself whogave cause for the dishonor. RCBC,
which caused the dishonor of the check upon presentment to the drawee
bank, through the qualified endorsement of its employee, Olivia Gomez,
cannot hold prior endorsers, Alviar and Gonzales in this case, liable on the
instrument.
16. Metropolitan Bank and Trust Co vs Cabitzo (GR No 154469; December 6,
2006)
FACTS:
Cabilzo issued a Metrobank Check payable to “CASH” and postdated on
November24,1994 in the amountof P1,000.00. The checkwas drawnagainst
Cabilzo’s account with Metrobank and was paid by Cabilzo to a certain Mr.
Marquez, as his sales commission.
Subsequently, the check was presented to Westmont Bank for payment.
Westmont Bank, in turn, indorsed the check to Metrobank for appropriate
clearing.Afterthe entriesthereonwereexamined,includingthe availabilityof
fundsandthe authenticityof the signature of the drawer,Metrobank cleared
the check for encashment in accordance with the Philippine Clearing House
Corporation (PCHC) Rules.
Cabilzo discovered that Metrobank Check No. 985988 which he issued on 12
November 1994 in the amount of P1,000.00 was altered to P91,000.00 and
the date 24 November 1994 was changed to 14 November 1994. Cabilzo
demanded that Metrobank re-credit the amount of P91,000.00 to his
account. Third-Party Complaint was then filed by Westmont bank because
another case involving the same cause of action was pending before a
different court.
The trial court granted the Motion to Dismiss the Third-Party Complaint on
the ground of litis pendentia. On 4 September 1998, the RTC rendered a
Decision in favor of Cabilzo and thereby ordered Metrobank to pay the sum
of P90,000.00, the amount of the check. The Court of Appeals affirmed the
RTC’s decision. Hence this petition.
ISSUE:
Whether or not Metrobank is liable for the alterations on the subject check
bearing the forged signature of the drawer.
RULING:
Yes. An alteration is said to be material if it changes the effect of the
instrument. It means that an unauthorized change in an instrument that
purportsto modifyinanyrespectthe obligationof aparty or an unauthorized
addition of words or numbers or other change to an incomplete instrument
relating to the obligation of a party. In other words, a material alteration is
one whichchangesthe itemswhichare requiredtobe stated under Section 1
of the Negotiable Instruments Law. In the present case, it is obvious that
Metrobank was remiss in that duty and violated that relationship. As
observedbythe Courtof Appeals,there are material alterations on the check
that are visible to the naked eye.
Surprisingly, however, Metrobank failed to detect the above alterations
which could not escape the attention of even an ordinary person. This
negligence was exacerbated by the fact that, as found by the trial court, the
check in question was examined by the cash custodian whose functions do
not include the examinations of checks indorsed for payment against
drawer’s accounts. Obviously, the employee allowed by Metrobank to
examine the check was not verse and competent to handle such duty.
WHEREFORE, the instant Petition is DENIED.
17. Theresa Macalalag vs People of the Philippines (GR No 164358;
December 20, 2006)
Facts:
Petitionerobtainedloansfrom Grace Estrella. Failure to pay the interest and
the loan, she executed two acknowledgement/affirmation receipts and as
securityforpaymentof the aforesaidloansissuedtwo PNB checks in favor of
Estrella.However,whenEstrellapresented said checks for payment with the
drawee bank, the same were dishonored for the reason that the account

12. againstwhich the same was drawn was already closed. Estrella sent a notice
of dishonor and demand to make good the said checks to Macalalag, but the
latter failed to do so. Hence, Estrella filed two criminal complaints for
Violation of Batas Pambansa Blg. 22.
Issue:
Whether or not petitioner is violated BP 22 upon issuance of the check as
security.
Held:
We have repeatedlyheldthatthere is no violation of Batas Pambansa Blg. 22
if the complainantwasactuallytoldbythe drawer10 thathe has nosufficient
funds in a bank. Where, as in the case at bar, the checks were issued as
securityfora loan, payment by the accused of the amount of the check prior
to its presentation for payment would certainly serve the same purpose.
WhenEstrellapresentedthe checksforpayment,the same were dishonored
on the groundthat theywere drawnagainst a closed account. Despite notice
of dishonor, petitioner Macalalag failed to pay the full face value of the
second check issued. Only a full payment of the face value of the second
check at the time of 15 its presentment or during the five-day grace period
could have exonerated her from criminal liability.
18. BPI vs CA (GR No. 136202; January 25, 2007)
FACTS:
Templonuevo demanded payment from petitioner of a sum of money
representing the aggregate value of three checks which were erroneously
deposited with the petitioner to A.A. Salazar Construction and Engineering
Services account. Finding merit in the demands, the bank then froze the
account of the engineering firm as the account of Salazar was already closed
or had insufficient funds. Failure of any settlement between Templonuevo
and Salazar, this prompted the bank to debit the account of Salazar and give
back the money to Templonuevo through cashier’s check. The account of
Salazarwas alsodebitedforwhateverchargesincurredforthe issuance of the
cashier’scheck.Hence,respondentSalazarfiledthisactionforthe recoveryof
the money.
ISSUE:
Whether or not the collecting bank have the authority to withdraw
unilaterallyfromsuchdepositor’s account the amount it had previously paid
upon certain unendorsed order instruments deposited by the depositor to
another account that she later closed?
HELD:
Consequently, petitioner, as the collecting bank, had the right to debit
Salazar’s account for the value of the checks it previously credited in her
favor.It isof no momentthatthe account debitedbypetitionerwasdifferent
from the original account to which the proceeds of the check were credited
because both admittedly belonged to Salazar, the former being the account
of the sole proprietorship which had no separate and distinct personality
from her, and the latter being her personal account. However, the bank is
liable for damages caused to Salazar as a result of the erroneous debit by
reason of its failure to perform its obligation to treat their depositors with
meticulous care, having in mind the fiduciary nature of their relationship.